Tax Return : 1st problem : Purchase made on behalf of Client

[waynerrr]

What are the implications of a client asking me to "purchase something and then they will reimburse me"? (e.g. network hardware = £200)

1. Is this a recognised practice (In terms of how the inland revenue would see it) or would they try to discourage this kind of practice?

2. So if i outlay £200 on a purchase & then get £200 back off the company, Does this have to be documented in my records (if so, how and where).

3. if it has to be documented in my records then does it appear anywhere on my tax return? ..If so where (which box on short form)

4. The other company are given the receipt, so would they be able to just use it in their records (as if they had purchased the item themselves) & therefore would it appear in both our records.

[Gratis Guidance]

Your records have to show your entire turnover for the year.

If you are buying something for someone and then they pay you back, you are buying stock for resale. As you are selling for the same price as you buy it, there is no taxable profit.

Just stick it under stock.

The tax man doesn't like you doing this too often as it smells of something bad (why are you making no profit?), but a one off is usually quite honest!

Hope this helps!

[elainec100@cheapaccounting]

The tax man doesn't like you doing this too often as it smells of something bad (why are you making no profit?), but a one off is usually quite honest!

Hope this helps!

There is nothing wrong with this at all - acceptable practice in many industries.


The accounting entries are:


Purchase item
debit cost of sales
credit bank

Sale
debit bank / debtors
credit sales

It is part of your turnover - so if you are vat registered you have to add vat - see here for rule son this:

http://www.hmrc.gov.uk/vat/managing/charging/disbursements.htm

[Zeno]

Make sure your client realises that if you are not VAT registered that they cannot recover VAT on the purchase.

[Joyous]

4. The other company are given the receipt, so would they be able to just use it in their records (as if they had purchased the item themselves) & therefore would it appear in both our records.
You bought the item so the receipt is yours and forms part of your accounting records. If the client wants a receipt reproduce it on your own stationery and give them that.

Regards

Joy

[waynerrr]

The accounting entries are:
Purchase item
debit cost of sales
credit bank

Sale
debit bank / debtors
credit sales

It is part of your turnover - so if you are vat registered you have to add vat - see here for rule son this

So is the following workflow correct (NOT VAT registered):-
£200 item bought (£170 +£30 VAT = £200)

so I enter £200 in cost of sales Box

Then I add £200 to my sales/turnover

So is the following workflow correct (IF VAT registered):-

would I have bought it at the shop for £170 ??

£170 in cost of sales Box

and £170 to my sales/turnover

[elainec100@cheapaccounting]

yes - short answer

[waynerrr]

Make sure your client realises that if you are not VAT registered that they cannot recover VAT on the purchase.

So just to clarify

If I am VAT registered then my clients wont lose out by this way of working.

However, as I am Not VAT registered then they will lose out

Have i got the idea, or have i misunderstood
Thank You

(p.s. there is a part 2 to this coming, appologies!)

[Zeno]

So just to clarify

If I am VAT registered then my clients wont lose out by this way of working.

However, as I am Not VAT registered then they will lose out

Have i got the idea, or have i misunderstood
Thank You

(p.s. there is a part 2 to this coming, appologies!)

If you were VAT registered you could reclaim the VAT suffered on the purchase but then would have to charge it on the sale. You would be charged £235 Inc. Vat so could recover the £35 of VAT and then charge £235 to your client who could do the same.

If you are not VAT registered then the item will actually cost you £235 however your client will not be able to recover the VAT that was charged as you cannot charge VAT.

If you look at the link supplied by HMRC regarding disbursements this changes things.

[waynerrr]

I'm Lost

For income tax purposes I was acting as an "agent" (He said to me that he needed it for the business, the idea and suggestion came wholly from him, it was separate from the work i was doing)

and I no longer have the receipt as I passed it straight to them

Is it therefore not necessary for me to effect a re-sale to my client

And thus if "no sale needs to be effected then my accounts will not show a purchase and resale"

Dont I just put £200 in cost of sales Box

If i was acting as the "principal" of the purchase (then the recommendation would have come from me) then that "would" effect a re-sale to my client. But this was NOT the case

[waynerrr]

As far as he's concerned he now has the receipt, so he can deal with it in the normal way??

It sort of makes sense to me like this, hope this is "Sound" as that will get me out of this dilema

[waynerrr]

Ive Now had a chance to look at the HMRC link about "Disbursements" & "recharges"

hmrc.gov.uk/vat/managing/charging/disbursements.htm

It gives this example:-

A client agrees to pay a website design consultant £2,500 + VAT (work) + £300 (traveling expenses). Also website hosting package (purchased on the client's behalf is £150)


The consultant's invoice:
• design services - £2,500
• travelling expenses - £300
• amount on which VAT is due - £2,800
• VAT at 15 per cent - £420
• disbursements - £150
• total including VAT - £3,370

The £300 travel cost that the consultant recharges to the client is not a disbursement. The consultant must charge VAT on it. The cost of the website hosting package (purchased on the client's behalf is £150) is a disbursement and can be excluded from the VAT calculation, because:
• it was purchased for the use of the client
• the client agreed that the consultant would arrange and pay for it on their behalf - this means the consultant agreed to act as the client's agent
• the consultant passed the whole £150 charge on to the client, without adding anything, as a separate item on the invoice
• it was the client's responsibility to pay for the goods
• the consultant had permission from his client to make the payment
• the client knew the web hosting package was from another supplier and not from the consultant
• the consultant showed the costs separately in the invoice
• the web hosting package paid for by the consultant is additional to the other services being billed to the client

[waynerrr]

So with reference to above, Can you advise me what to do next.
Remember I am Not VAT registered.
But I need to recover my "Disbursement" from the company

Should I just put in another Invoice (like above) with the receipt attached again.

As I bought the item with my credit card under instruction from a manager (he was a friend, but he clearly didnt know what he was doing). He told me they could only do it with an invoice with the receipt attached. But head office rejected it.

and if I just reference it as a "Disbursement". Do you think that this time head office will accept it (was it simply that it needed the word "Disbursement")??

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TAX RETURN

Then I just enter £200 in cost of sales Box

Then I add £200 to my sales/turnover

Is that the solution?